If This Is Your Trading Chart You Have Issues
These types of images where a trading chart is cluttered with indicators always makes me laugh. There is so much information going on and no doubt one will conflict with the other.
Some will say more information the better. Depends on the quality of information as well as the source.
TIME TO SIMPLIFY
Look at what is on the chart in terms of indicators. On the main screen it looks to be some type of bands….could be Bollinger bands given the Bollinger “balloon that happens near the far right edge. There are certainly buy and sell markings which would indicate that it’s a 100% mechanical trading system. They may have some discretionary aspects to it but at face value, mechanical.
There is also overlap in when looking in the bottom panels. Except for the volume analysis, there are 2 momentum indicators and one has 2 settings given 3 levels of information in regards to momentum. The difference is that the stochastic may be used as an oversold/overbought indicator and the MACD is the true momentum indicator.
The truth with indicators as discussed is that they require price in order to calculate which means they are going to lead price. Someone skilled in price action trading could look at the chart and get roughly the same type of information.
- You can see momentum on the chart.
- You can see when a market is overbought or oversold.
You really don’t need a trading indicator to show you that.
Keep Your Trading Chart Simple
Indicators are not totally useless on a trading chart though. They can make great tools in terms of scanning or as a “second opinion” about what you are seeing or saw. You just want to make sure you are using the bare minimum and the use of the indicator has been shown to IMPROVE your trading. Something that does not add to your trading system is not worth having on the chart.
Trading Chart with 50 SMA
Let’s say you have a basket of charts you scan through and you are looking for trending market. You plot a 50 sma on your charts and look for price that is far away from the average (define what far is to you). Like the stretched rubber band, you anticipate a pullback trade and you put charts that fit your definition on a watch list.
You can quickly flip through charts and then flag the ones of interest for a second look at price. Each chart should take about 2 seconds.
What about scanning for breakout trades?
You can quickly scan for charts that have price hugging the moving average. Get drawing your support and resistance lines, either diagonal or horizontal, and play breakouts depending on your trade trigger.
Trading indicators are not all that bad but it really depends on how they are used. To be honest, most people use them as the holy grail and that’s not true!
Charts Courtesy of StockCharts.com Price closed below the $SPY 200 day and 250 day simple moving averages last week failing to break to a new bull market trend to the upside so far. $SPY remains above the 10 day, 50 day, 100 day moving averages after the recent up swing from the December 24th lows. The $SPX chart (pictured below) found resistance at the 200 day SMA last week. $SPY found resistance at the overbought 69+ RSI last week and ended at 61.30 not able to grind higher into overbought conditions. The trading range continues to compress to a 3.60 ATR. Volatility continues to decline to a $VIX at 15.72 and under the 200 day SMA for the first time since October 5th, 2018. The search for yield has driven capital into the Real Estate $XLRE and Utilities $XLU sector ETFs as bond prices increase the bond yields decrease. $TLT $HYG $JNK The strong U.S. dollar up trend $UUP has driven down the value of oil $USO and the energy sector $XLE ETF. The stock market needs time to work through overbought conditions before the potential of a new uptrend begins The odds shift here to a sideways rangebound market next week waiting for the outcomes of the China trade deal and U.S. government shutdown before a new trade becomes established.
Here are ten ways to keep your account safe during a market correction, when support levels break, up trends reverse, and oversold indicators just get more oversold. 1.Your long positions should be stopped out quickly as the first short term moving averages are broken early on. 2.You should already be out before the pullback turns into a full blown correction as your holdings lose key short term price support levels. 3.Trade smaller and smaller as volatility expands. 4.Tighten the timeframe of your signals, buys and sells can become faster. 5.Move from trend signals and look to buy the deepest dips. The 30 RSI (14) on the daily chart can be a good indicator near bounce zones. 6.This type of market is better for range bound signals. 7.Take good profits off the table while they are still there. 8.Consider using short side signals if you have a tested and proven system. 9.Look for opportunities to buy stocks at prices you have wanted them at for a long time for long term holding. 10.Watch long term moving averages closely to be ready to buy a reversal in the downtrend. The 200 day and 250 day simple moving averages are good long term trend signals to watch for turns in either direction.
And here we are again talking about the strategy that withstood the test of time. This Forex trading method is based on the same study of defining support and resistance levels and trading upon the fact of their violation. A trading setup requires only an open chart and no restrictions for the currency or timing preferences. Entry rules: Once the price makes it through the “pivot Line” - dotted white line on the figure below (drawn using the latest price peak) - and closes above (for uptrend) or below (for downtrend) the line buy/sell accordingly. Exit rules: not set. However, exit can be found using Fibonacci method; or traders can measure the distance between point 2 and point 3 and project it on the chart for exit. Additions: as an additional tool traders can use MACD (12, 26, 9). The rules for entry then will be next - let’s take a SELL order: When MACD lines cross downwards, you look for 1-2-3 set-up to form. When the price starts “attacking” the “pivot Line” you check that MACD is still in SELL mode (two lines are heading down). Once the price closes below the “pivot Line” – place Sell order. Same chart: MACD (12, 26, 9) is added. Enjoy!